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Chapter 1-3 Exercises

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Chapter 1-3 Exercises

Uploaded by

thenleeberg12
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

A company issued financial statements for the year ended December 31, but failed
to include the following adjusting entries:
A. Accrued service fees earned of $2,200.
B. Depreciation expense of $8,000.
C. Portion of office supplies (an asset) used $3,100.
D. Accrued salaries of $5,200.
E. Revenues of $7,200, originally recorded as unearned, have been earned by the end
of the year.
Determine the correct amounts for the December 31 financial statements by
completing the following table:

Assets Liabilities Equity Net Profit


Reported amounts.... $350,000 $200,000 $150,000 $70,000
Add (subtract) to correct for item;
A...............................
B...............................
C...............................
D...............................
E...............................
Corrected amounts...

Assets Liabilities Equity Net Profit


Reported amounts.... $350,000 $200,000 $150,000 $70,000
Add (subtract) to correct for item;
A............................... 2,200 2,200 2,200
B............................... (8,000) (8,000) (8,000)
C............................... (3,100) (3,100) (3,100)
D............................... 5,200 (5,200) (5,200)
E............................... (7,200) 7,200 7,200
Corrected amounts... $341,100 $198,000 $143,100 $63,100

2. Complete the following by filling in the blanks:


(1) The Prepaid Insurance account had a $455 debit balance at the beginning of
the current year; $650 of insurance premiums were paid during the year; and the
year- end statement of financial position showed $420 of prepaid insurance;
consequently, the income statement for the year must have shown
$_______________ of insurance expense.
(2) The Office Supplies account began the current year with a $235 debit
balance; the income statement for the year showed $475 of office supplies
expense; and the year- end statement of financial position showed the current
asset, office supplies, at $225; consequently, if all supplies were accounted
for, $_____________ of office supplies must have been purchased during the
year.

(1) $685 = $455 + $650 - $420


(2) $465 = $225 + $475 - $235
3.
156. Infinity Media had the following assets and liabilities at the beginning and end of
the current year:

Assets Liabilities
Beginning of the $114,000 $68,000
year.........
End of the 135,000 73,000
year...................

If Infinity Media did not issue additional shares but paid dividends $5,000 during the
year, what was the amount of net profit earned by Infinity Media?

Beginning equity = $114,000 - $68,000 = $46,000


Ending equity = $135,000 - $73,000 = $62,000
Increase in equity = $62,000 - $46,000 = $16,000
Net profit = $16,000 + $5,000 = $21,000
161. For each of the following errors, indicate on the table below the amount by
which the trial balance will be out of balance and which trial balance column (debit or
credit) will have the larger total as a result of the error.
a. $100 debit to Cash was debited to the Cash account twice.
b. $1,900 credit to Sales was posted as a $190 credit.
c. $5,000 debit to Office Equipment was debited to Office Supplies.
d. $625 debit to Prepaid Insurance was posted as a $62.50 debit.
e. $520 credit to Accounts Payable was not posted.

Error Amount Out of Balance Column With


Larger Total
a.
b.
c.
d.
e.

Error Amount Out of Balance Column With


Larger Total
a. $100 Debit
b. $1,710 Debit
c. — —
d. $562.50 Credit
e. $520 Debit
166. For each of the following (1) identify the type of account as an asset, liability,
equity, revenue, or expense, and (2) identify the normal balance of the account.

Account Type Normal Balance


a. Wages expense
b. Accounts receivable
c. Commissions earned
d. Salaries payable
e. Share capital
f. Unearned advertising revenue
g. Salaries expense
h. Season ticket sales
i. Dividends
j. Prepaid insurance

Account Type Normal Balance


a. Wages expense expense debit
b. Accounts receivable asset debit
c. Commissions earned revenue credit
d. Salaries payable liability credit
e. Share capital equity credit
f. Unearned advertising revenue liability credit
g. Salaries expense expense debit
h. Season ticket sales revenue credit
i. Dividends equity debit
j. Prepaid insurance asset debit

179. Identify each of the following business activities 1 through 6 into the appropriate
category of operating (O), investing (I), or financing (F).

Paid utilities expenses. O


Paid back money borrowed. F
Purchase of land. I
Sale of used equipment. I
Borrowed money from a bank on a long-term note. F
Paid employee wages. O

178. Match the following definitions with the terms 1 through 9. Place the letter that
identifies the best definition in the blank space next to the term.

1. The cost of assets or services used to earn revenue Statement of cash 3


flows
2. An exchange of value between two parties Business transaction 2

3. A financial statement that lists cash inflows (receipts) and Monetary unit 8
cash outflows (payments); the cash flows are arranged by assumption
operating, investing, and financing activities
4. Creditor's claims on assets Business entity 6
assumption
5. A financial statement that reports beginning share capital, Revenue recognition 9
events that increase it (issuance of shares and net profit), and principle
events that decrease it (dividends and net loss).
6. The principle that requires a business to be accounted for Accounting equation 7
separately from its owners
7. The relation between a company's assets, liabilities, and Statement of changes 5
equity in equity
8. The assumption that transactions and events can be Expenses 1
expressed in money units
9. The principle that revenue is recognized when earned Liabilities 4

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